Question 4: (20 points)

Stock A has a required rate of return of 10%, the risk-free rate is 4% and the market risk premium (Rm Rf) is 3%.

a. What is the stocks beta?

b. If the market risk premium increased to 5%, what could happen to the stocks required rate of return? Why? Assume the risk-free rate and beta remain unchanged.

Question 5: (20 points)

Suppose you are the money manager of a $8 million investment fund. The fund consists of four stocks with the following investments and betas:

Stock	Invested	Beta
APHA	$2,000,000	1.5
BPTH	$1,500,000	1.2
CRON	$4,000,000	-0.5
SPOT	$500,000	0.7

If the markets required rate of return is 7% and the risk-free rate is 2.5%, what is the funds required rate of return?